How to make hair dynamics work with surface deform modifier and cloth simulation to make a blanket with tassles?
For anyone struggling with this problem, I successfully modeled the blanket with tassels by instancing the braided tassels onto the hair particle system using the particle instance modifier with the settings outlined here: Getting instanced particles to follow paths of hairs in particle system with hair dynamics
Edit: For the sake of completeness, it is worth noting that the issue here in this question is about the fact that the blanket has normals that point in the wrong direction. To flip them press Alt+N in Edit mode. After that, the tassel object needs to be rotated by 180° (X-axis: -90° → 90°) so that it sticks out and not in the blanket. To make the tassel bent along the hair particle a Particle Instance modifier is needed (see linked question above).